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2. (7 points) Suppose Joes utility for lobster (L) and soda (S) can be represented as U Lo5 s 6.5 Joe walks into a restaurant with $72. Lobsters cost $18 each and sodas cost $2 each. (1) What is the equation for Joes budget line? (2) What is Joes marginal utility of L? (3) Whats Joes marginal rate of substitution? MRS- (4) How would Joes budget line change if he receives a $20 cash gift? Answer

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Fquaion Baget unu oe s = o.SL sO.S S O.S 3. MRS MUL MUs LS Mus = 1°.slo.5) S.s- = o.s Ls So 0.5 O.S so.7.。.s- o.Sto. So) MKS s= ML to·s) - MO MKSS Neo Budget (M) = M + 320-72 t20 Bu

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